U.S. Stocks Close Mixed

By

Jonathan Cheng

Updated June 20, 2012 5:58 p.m. ET

U.S. stocks finished a volatile day roughly where they started, as investors balanced positive developments in Europe against some disappointment that the Federal Reserve held off on more aggressive action to juice the economy.

Investors gave a muted response to the Federal Reserve's efforts to juice the economy. Yields on longer-term Treasurys fell. Paul Vigna has details on The News Hub. Photo: Reuters.

The Dow Jones Industrial Average finished down 13.02 points, or 0.10%, at 12824.31 after reversing an intraday loss of 92 points. The Standard & Poor's 500 index fell 2.28 points, or 0.17%, to 1355.69, while the Nasdaq Composite inched up 0.69 points, or 0.02%, to 2930.45 to extend its winning streak to five days.

ENLARGE

Associated Press

The gyrations came after the Fed said it would extend its Operation Twist stimulus measure through the end of the year. As part of the program, the central bank sells short-term Treasurys and buys longer-dated ones in an effort to keep long-term borrowing costs down. Prior to the announcement, Operation Twist was scheduled to end June 30.

But some investors had been looking for more, in particular a new commitment to bond buying in response to the U.S.'s exposure to the European debt crisis and fears of a slowing economic recovery in the U.S.

The Fed committee members said in the statement that they were "prepared to take further action" if needed. The Fed has said since January that it plans to keep short-term interest rates at "exceptionally low levels" at least through late 2014.

In a press conference later in the afternoon, central bank chairman Ben Bernanke offered little in the way of hints that the Fed was prepared to act imminently, though he said that the Fed still had "ammunition" to do more.

"If you look at what most economists were saying, it was unlikely that we were going to get any more than Operation Twist, but the market may have been expecting more dramatic action," says Maury Fertig, chief investment officer at Relative Value Partners. Mr. Fertig pointed to the recent days' rally, which saw the blue-chip Dow rise to a six-week high.

Mr. Fertig said that run-up had been fueled by hopes for a third round of direct bond buying by the Fed, known on Wall Street as QE3. "There's a mild level of disappointment that there wasn't QE3, though the Fed has to save some bullets and see what happens in the next six weeks before their next meeting," he said.

Yields on longer-term U.S. Treasurys initially fell after the Fed announcement, as investors factored in more purchases of securities by the central bank. The yield on the benchmark 10-year note finished the day at 1.640%, compared to about 1.67% prior to the Fed statement.

Gold pared its earlier losses, shedding 0.5% to settle at $1614.80 per troy ounce. Crude oil futures fell 2.7% to $81.80 a barrel, the lowest level since October, after government inventory numbers showed a larger-than-expected build-up in crude reserves. The dollar moved higher against many of its rivals, including the yen, though it lost ground to the euro.

Consumer staple stocks pulled the major benchmarks down, dragged lower by Procter & Gamble's decline. Leading on the positive side were financial stocks, as J. P. Morgan Chase rose 3% to top the list of Dow gainers.

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Prior to the Fed announcement, European markets finished broadly higher, with the Stoxx Europe 600 ending 0.6% higher after Greece's conservative New Democracy party secured a consensus for a coalition government with the Socialist Pasok party and the Democratic Left party. New Democracy leader Antonis Samaras was also sworn in as prime minister, removing a recent source of market uncertainty.

In London, the minutes from the Bank of England's last policy meeting revealed the central bank was close to pumping more stimulus in the U.K. economy. Also giving a lift to sentiment Wednesday, data showed that job growth in the U.K. in April reached its highest level in more than three years. The FTSE 100 index rose 0.6% to hit a six-week high.

Tensions also eased a touch in Spain, where the yield on 10-year government bonds slipped further below the key 7% mark and the IBEX-35 index tacking on 1.5%.

Asian markets were mostly higher on hopes of more stimulus from the Fed. Japan's Nikkei Stock Average rallied 1.1%, though China's Shanghai Composite bucked the trend to slip 0.3%.

In corporate headlines, Procter & Gamble tumbled 2.9% to lead the Dow decliners after the blue-chip consumer products company lowered its earnings outlook for the current quarter and for the next fiscal year, citing slower-than-expected growth in developed markets. Rivals Colgate-Palmolive and Kimberly-Clark fell 0.6% and 1.9% respectively.

Walgreen fell 2.9% one day after tumbling 5.9%. Wednesday's decline came in the wake of analyst downgrades, following Walgreen's $6.7 billion deal to buy nearly half of European pharmacy giant Alliance Boots. The deal marks a bet by the largest U.S. drugstore chain that it can expand in Europe as it grapples with declining sales at home.

Adobe Systems slid 2.7% after the company provided a downbeat outlook for the current quarter, citing a weaker demand forecast in Europe.

Cisco Systems rose 1.9% after analysts at BMO Capital Markets pushed its target price for the networking giant higher, arguing the current share price doesn't give the company credit for a strong valuation based on solid business execution.

Facebook eased 1% one day after closing at its highest level since May 25.

Burger King Worldwide pared earlier gains to rise 3.5% on its first day of public trading on the New York Stock Exchange.

Idenix Pharmaceuticals climbed 14% after the company announced upbeat interim results from a Phase 2 study of its hepatitis C treatment.

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